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Steven Cohen and Point72 Asset Management's 1Q 2014 positions

Part 9
Steven Cohen and Point72 Asset Management's 1Q 2014 positions (Part 9 of 9)

Cohen’s Point72 Asset Management increases its position in Baidu

Point72 Asset Management and Baidu

Point72 Asset Management added new positions in BlackBerry (BBRY), Liberty Global (LBYTK), Estée Lauder Companies (EL), and Discovery Communications (DISCA). The main positions the fund sold include Foster Wheeler (FWLT) and Broadcom (BRCM). The fund’s top position increases include Yahoo (YHOO) and Baidu (BIDU).

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Steven Cohen’s Point72 Asset Management upped its position in Baidu Inc. (BIDU) last quarter, which now accounts for 1.64% of the fund’s total 1Q portfolio. The position was increased from 0.16% of the 4Q 2013 portfolio.

Baidu is a leading Chinese-language Internet search provider. The Baidu.com website was the largest website in China and the fifth largest website globally, as measured by average daily visitors and page views during the three-month period ended December 31, 2013, according to Alexa.com, an Internet analytics firm. It is the most used Internet search provider in China, capturing 81.6% of Internet search traffic in China in 2013, according to iResearch Consulting Group, a market research firm. Revenues generated from operations in China accounted for approximately 99.8% of total revenue in 2013. The search engine giant generates substantially all of its revenues from online marketing services, a substantial majority of which derives from its pay-for-performance, or P4P, services.

Baidu’s 1Q results top estimates

Baidu’s recent 1Q 2014 results topped estimates. Total revenues in the first quarter of 2014 were $1.528 billion, a 59.1% increase from 1Q 2013. Net income was $407.8 million, a 24.1% increase from the corresponding period in 2013. Diluted earnings per ADS for the first quarter of 2014 were $1.16. Management said the “core search business once again drove strong top-line growth.” Online advertising revenue for the first quarter of 2014 was $1.509 billion, up 57.5% from the corresponding period in 2013. The company said it spent more on sales and marketing, R&D, and TAC in the first quarter and stepped up its marketing efforts around the Chinese New Year to promote its mobile products.

Baidu said it saw solid growth in both PC and mobile search traffic, with its combined share of PC and mobile search page views standing at 73%, according to Analysys International. Baidu noted that its flagship search app has been the largest and fastest-growing source of mobile search traffic and daily active users. In 1Q, the company’s app crossed 100 million  downloads on a daily basis.

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Baidu’s profit outlook remains conservative

The company expects second-quarter sales of $1.9 billion to $1.95 billion, which would represent an increase of 56.3% to 60.2%. However, the company said on the earnings call that it doesn’t expect any profit increase due to high investments for enhancing the company’s mobile offerings.

Despite the conservative profit outlook, a Deutsche Bank analyst maintained a bullish stance and noted, “Despite a purported heavy investment plan for the rest of FY14, we believe the market has underestimated BIDU’s viability and is overly conservative on its growth /earnings outlook. We believe it is unjustified for BIDU to trade at a significant discount vs. peer avg amid steadily improving fundamentals.”

Besides Google and Yahoo, Baidu sees competition from other Chinese search peers, including Tencent’s Soso, Qihoo’s (QIHU) 360, and Alibaba’s (ABABA) and Sohu’s (SOHU) Sogou. Chinese Internet stocks fell at the end of April following a Chinese government ban on U.S. shows such as The Big Bang Theory, The Good Wife, NCIS, and The Practice, which were removed from Chinese video streaming sites, according to reports.

To learn more about the latest hedge fund positions, check out Market Realist’s 13Fs for Hedge Fund Ownership Page.

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